Interest Rate Forecast 2019 and 2020


Last updated October 24, 2018

Here you will find our latest analysis of interest rate forecasts provided by leading financial institutions in Canada translated into mortgage rate forecasts. We provide a 2-year forecast to help you decide whether to choose a locked-in or variable interest rate for your mortgage.

On October 24th the Bank of Canada raised the target Bank Rate to 1.75%. That's 1.25% higher than in 2016 but still 1% short of what would be considered a normal or neutral interest rate range for good economic times.

Looking ahead, we offer you our quarterly analysis of interest rate forecasts provided by leading financial institutions in Canada and translate these into mortgage rate forecasts. We provide a forecast to the end of 2020 to help you decide whether to lock in your mortgage rates or leave them floating.

Overall, we see an upward trend in rates with little debate over how large the rise will be in the next 6 months and but there is more uncertainty in the long run. Most economists anticipate a quarter point increase in the Bank Rate in early 2019.

Why do we look at Bank Rate forecasts?

Variable and adjustable mortgage rates are tied to the Bank Rate (the rate at which banks can borrow from the Bank of Canada).

By the end of 2020, a majority of economists expect at least three more rate increases to 2.5%. Scotiabank expects the bank rate may reach 3.00% by the end of 2020. Overall, with a replacement for the NAFTA trade agreement negotiated, banks have accelerated their expected rate increases. The Bank Rate was 4.00% in 2007 so the forecast rates are not outside the normal range long term range.

The Prime Rate will increases with the Bank Rate, so it is possible variable and adjustable mortgage rates could rise 0.75% to 1.25% by the end of 2020. If this worries you, then consider a fixed rate mortgage.

5-Year Fixed Mortgage Rate

5-year government bonds and 5-year mortgage rates move together so one is an ideal guide for the other.

The big news here is that the Desjardins and National Bank economists expect rates to take a sharp downward turn toward the end 2020, which would be an appropriate response to a recession. In our previous forecast RBC showed a similar downward prediction but subsequently they've adjusted their forecast upward. Fears of a recession are nothing new and a recent Huffington Post article covered this exact topic. In truth, a recession is likely inevitable but the timing is devilishly tricky.

What you can take away from these forecasts is that rates will likely be the same or higher than today but they are unlikely to drop lower than today’s rates.

Based on these forecasts, you will see that locking in today’s 3.6% 5-year mortgage rate will start benefiting you in 2019 if variable rates climb to 3.9%.

If you are inclined toward a fixed rate mortgage, our advice is to speak to a Mortgage Broker as early as possible to lock in a rate. You can lock in a rate up to 120 days before closing on a home sale or the renewal of your mortgage.

Mortgage Rate Forecast

1 The federal banking regulator (OSFI) has required borrowers to qualify for a residential mortgage using a stress test of the negotiated 5 year mortgage rate plus 2%. The stress test came into effect January 1, 2018.
Rate Dec 2016 Dec 2017 Today Oct 2018 Dec 2018 Dec 2019 Dec 2020
Prime Rate 2.70% 3.20% 3.95% 3.95% 4.70% 4.70%
5 Year Variable Mortgage Rate 1.90% 2.60% 3.15% 3.15% 3.90% 3.90%
5 Year Fixed Mortgage Rate 2.49% 3.25% 3.60% 3.73% 4.06% 3.98%
5 Year Fixed Mortgage Qualifying Rate1 2.49% 3.25% 5.60% 5.73% 6.06% 5.98%

Note: This is a forecast of competitive rates for the average mortgage. Available mortgage rates differ depending on the purpose of the mortgage (e.g., purchase, renewal/transfer, refinance, rental property) and other factors (e.g., mortgage default insurance, amortization, loan-to-value). It is not feasible to forecast every possible financing scenario. Source: Mortgage Sandbox Analysis

What you should do

  1. Lock in a 5-year fixed rate?

  2. Buy a home now or wait for the next cycle

Lock in a 5-year fixed rate

the average forecaster predicts that variable rates will rise another 0.75% over the next two years, and some forecasts predict further rate increases in 2021. Current rates are at the low end of the 10-year range so there is a good likelihood these forecasts are correct.

Although the forecast rate increases are not guaranteed to happen, if you are getting a new mortgage or renewing an existing mortgage, it would be prudent to lock in your mortgage rate for 5 years. You will be in good company because CMHC says 72% of home buyers in 2017 chose a fixed rate mortgage.

However, if you believe you may want to sell your home or move in the next few years, then locking in a rate can result in a large penalty fee if you cancel the mortgage before the full term is completed. The fee can be quite large, so keep this in mind when deciding to lock in an interest rate.

Buy a home now or wait for the next cycle

If you are planning to buy in the next 3 years, keep in mind that rising rates reduce the amount of mortgage financing a bank can offer you and this will erode your home buying budget. This effect was amplified by the addition of the qualification stress tests in January 2018. The silver lining is that it reduces home buying budgets for all home buyers and this will out downward pressure on home prices.

To get access to experts who know what every lender is doing, consult a mortgage broker. They have the broadest number of options to find you suitable financing.

If you’re not ready to buy a home, you can wait until rates begin to drop again but there is no guarantee they will ever be this low again. The previous low was in 1950 when it dropped to 1.5% which is the same rate we have today. For context, during WWII, when food was rationed, the Bank Rate was 2.5%.


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